Since Inception: 399.68. The subject line of the email you send will be "Fidelity.com: ". Municipal Bonds: Understanding Credit Risk (PDF) Retirement Income IQ Test. The mutual fund has an expense ratio of 0.95% and an up-front sales load of 4.25%. Morningstar. The PIMCO New York Municipal Bond Fund was rated against the following numbers of Muni New York Intermediate funds over the following time periods: Overall 5 Stars (49 funds rated); 3 Yrs. Accessed Nov. 14, 2020. Morningstar. When evaluating revenue bonds, it is important to consider: Credit and default risk The information herein is general and educational in nature and should not be considered legal or tax advice. Please consult your tax advisor before purchasing any security. Inflation risk Fidelity does not provide legal or tax advice. Fund managers invest a minimum of 80% of the mutual fund's $18.7 billion in assets in municipal bonds that pay interest exempt from personal income tax on the federal level, with the majority of fund assets invested in long-term, lower-quality issues., The Nuveen High Yield Municipal Bond Fund has generated a 10-year annualized return of 6.62% for investors as of November 2020. Municipal bond fund inflows in 2019 were tremendous. Tax risks In addition, under federal bankruptcy laws, a municipality must be specifically authorized by its state to file for protection, and the rules that govern a bankruptcy differ from state to state. These are provisions that give a bond issuer the right to call the bonds due to a one-time occurrence, such as a natural disaster, interruption to a revenue source, unexpended bond proceed, or canceled projects. Thus, as prices of bonds in the fund adjust to a rise in interest rates, the fund's share price may decline. Interest rate risk One example of this would be Long-Short Market Neutral stock funds. As with all bonds, investors run the risk that inflation will diminish the purchasing power of a municipal bond's principal and interest income. If interest rates rise, market prices of existing bonds will typically decline, despite the lack of change in both the coupon rate and maturity. With a 6.42% average return for the past 3 years and a 5-star Morningstar rating, the Nuveen High Yield Municipal Bond Fund is a strong performer, … A type of risk called "special event risk," lawsuits or significant legal changes, another community’s public works project, unusual weather, an economic downturn, or other events could impact the issuer's ability to meet their financial commitments. The fund's mandate is to invest at least 80% of its assets in municipal bonds having investment-grade quality, which are bonds rated BBB or higher. Through September 10, the S&P Municipal Bond Index returned 6.8%, outpacing the index’s 4.5% average annual return over the 10-year period through that date. The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. The mutual fund invests at least 80% of its $7.4 billion net assets in high-yield municipal bonds issued across the U.S. with tax-exempt income., As of November 2020, the fund has generated a 10-year annualized return of 6.89% for investors. Housing bonds So, if you purchased this bond for 92.75, ordinary income tax will apply on the entire amount of the difference (99 - 92.75) when the bond is redeemed at par, since 92.75 is less than 96.75. Revenue sources risk You can also own them indirectly through a municipal bond fund. Gain a deeper understanding of fixed income and bonds. A municipal bond can also be issued by legal entities such as a housing authority or a port authority. American High-Income Municipal Bond Fund, 2. This is the lowest price the bond can be purchased for in order for the market discount to be treated as a capital gain. These bonds can also be referred to as market discount bonds, particularly when the amount of the discount exceeds a certain calculated amount specified under the Internal Revenue Code. When looking at a muni fund or bond, an investor needs to be able to look at the "taxable equivalent yield." This is 41% higher than 2009, which held the previous record of $74 billion. HYMB is a muni bond fund that tracks a tier-weighted index of high-yield and investment-grade U.S. muni bonds with at least one year to maturity. Bonds are "escrowed to maturity" when the proceeds of a refunding issue are deposited in an escrow account for investment in an amount sufficient to pay the principal and interest on the issue being refunded. Tax on capital gains. Funds take rate risk when they buy bonds with far-out maturities—25 years, say, instead of 5 years. Escrowed-to-maturity (ETM) bonds All values are in … If you purchase a municipal bond in the secondary market at a (market) discount to the revised issue price, you will have to pay tax on the difference when the bond is redeemed. Municipal bond funds tend to provide long-term, steady capital appreciation with a low degree of volatility. The mutual fund diversifies holdings across low and highly rated bond issues, with a significant amount of assets in debt securities rated BBB+ or below. Conduit bonds may be issued for projects such as nonprofit hospitals, housing developments, colleges and universities, transportation hubs, student loan programs, and public works projects. Municipal Bond Funds. If you are looking at a 20 year municipal bond with a revised issue price of 99 and nine complete years left until maturity, the de minimis discount is 0.25 x 9 years = 2.25. Bonds issued to finance things like stadiums, replenishment of a municipality’s underfunded pension plan, or investor-led housing are a few examples of issues that would not qualify for federal tax exemption. They may also be adjusted by judgment. "Essentiality" is a key investor consideration for a project financed with revenue bonds. Investopedia requires writers to use primary sources to support their work. In general the bond market is volatile, and fixed income securities carry interest rate risk. Closed-end funds, like Nuveen AMT-Free Quality Municipal Income (NEA), offer 4% to 5%, thanks to higher-yielding long-term bonds, leverage, and … Municipal notes are short-term debt obligations which typically mature within a year or less, but may mature within two or three years. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. 1. The third-party borrower—not the issuing conduit agency—is responsible for interest payments and principal repayments. Private-sector corporations (such as hospitals and universities). Municipal bond funds are a great way to gain exposure to a diversified portfolio of these fixed-income assets. The issuing agency generally is not obligated to use any other source to repay the bonds if the conduit borrower fails to make loan repayments. But municipal bonds also have the low or negative correlations to fixed-income markets, giving them the ability to reduce risk for bond investors. 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